Long Reads

When China Leads

For the last 40 years, China has implemented a national strategy that, despite its many twists and turns, has produced the economic and political juggernaut we see today. It would be reckless to assume, as many still do in the US, Europe, and elsewhere, that China’s transition to global preeminence will somehow simply implode, under the weight of the political and economic contradictions they believe to be inherent to the Chinese model.

NEW YORK – The West, by and large, has no idea what awaits it as China continues its rise. The United States, under President Donald Trump, has become a global laughingstock in less than a year. Europe, with the notable exception of French President Emmanuel Macron, remains a rolling seminar on itself, oblivious to its declining relevance to the rest of the world. And the less said about Britain’s collective act of national political and economic suicide in last year’s Brexit referendum, the better.

In short, the West has turned decisively inward, while China, breaking with its 3,000 years of dynastic history, has turned decisively outward, so that today few corners of the world are untouched by its influence. Deng Xiaoping’s maxim, “hide your strength, bide your time, and never take a lead” has already been dead for some years. The just-completed 19th National Congress of the Communist Party of China (CPC) was its state funeral. Xi is now proclaiming explicitly to his own people and the world that it is time for China to take center stage within the global order, and to create a new type of international relations.

So, beyond the pomp and ceremony of the 19th National Congress, it is crucial to understand what its outcomes will mean for China and the world.

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"the European Union and the US – that is increasingly self-absorbed, self-satisfied, and internationally complacent."

Whatever one may think of China, that statement is all too true. There seems to be little appetite in taking society in any direction with the result that some benefit from hi-tech developments, while the rustbelts stagnate. But worst of all, there seems to be no real appetite in the liberal democracies to take on the challenge of climate change and China is the only country that is seeing its government tackling that directly as opposed to letting the market (which still has no real interest) do whatever turns it on.

China's economy will either implode or become a zombie. They have more total debt to GDP than the US now! Their manipulation of the CNY and CNH for the benefit of attempting to boost the value of yuan or at least keep it on parity with the USD is legendary. It is now getting expensive.

http://www.shibor.org/shibor/web/ShiborJPG_e.jsp

http://www.tma.org.hk/en_market_more_ib.aspx?year=2016&month=11&day=4

http://www.tma.org.hk/en_market_more_ib.aspx?year=2017&month=11&day=4

http://www.x-rates.com/average/?from=USD&to=CNY&amount=1&year=2017

Most economists and accountants do not take their GDP numbers as realistic given their debt.

I must agree with a "party that monopolizes state power". I must also say these great politicians should read (truly!) Estate and Revolution (Lenin) so they could understand what Estate means to a bochvique.

Kevin Rudd, former Prime Minister of Australia is a fluent Mandarin speaker, but not an economist. In this commentary he scrutinises Xi Jinping's 205-minute long speech delivered at the 19th National Congress of China's Communist Party (CPC), last week, which laid out his ambitious plan for the second term. The author says the West "has no idea" what lies in store as China "continues its rise." Forget about the West - the US under Trump is merely a laughing stock and the EU and Britain are marred by infighting ahead of Brexit. With the West turning "decisively inward" and in the absence of a global leadership, Xi told "his own people and the world that it is time for China to take center stage within the global order, and to create a new type of international relations." Looking at the new cadres of the Politburo Standing Committee handpicked by Xi, his focus will be on growth. Liu He, a Harvard-educated economist and another economic heavyweight will likely oversee the economic-reform agenda, which "will be a top priority for Xi in the next five years."The author says China aims to outdo the US and become the world's largest economy over the next decade. As the world's second largest economy, China's GDP per capita still trails behind many advanced economies. With a GDP of $11.2 trillion (World Bank 2016) and a population of 1.379 billion, its GDP per capita is $8.123. Xi's strategy is to move away from the "current" growth model, based on "low-wage, labor-intensive export manufacturing" to technology-driven and high-end manufacturing, that would generate higher revenues. His "Belt and Road" initiative that builds roads, railways and other infrastructure projects that will solidify Chinese economic and political influence abroad.In order to improve the incomes of the rural population, over 200 million people will be moved to urban areas, where they would find jobs in the service sector and help boost domestic consumption. But would Xi's "comprehensive market-based strategy" work? The author says China has proved its critics wrong. Despite the "many twists and turns", its "national strategy" had conjured up the "economic and political phenomenon" the world is seeing. China would not "implode under the weight of the political and economic contradictions" - growth without liberalising the economy and political reform. Xi certainly hopes that other countries would seek to emulate his Chinese model. If everything goes Xi's way, the global system would soon be "led by a non-English-speaking, non-Western, non-democratic state." As the EU and the US are "increasingly self-absorbed, self-satisfied, and internationally complacent", the rule-based global order they had overseen "will not remain immune from this fundamental geo-economic and geopolitical change. Nor will the conceptual foundations of the West – Judeo-Christian values and the Enlightenment principles of science, liberty, and universal human rights – be immune from challenge. To believe otherwise is willfully to ignore the deep changes that are now afoot." Indeed, many in the West see this as a great concern. No doubt China's economic might matters. The author says the "list of what can go wrong for China’s unfolding economic and international project is formidable." People said in the past, when Wall Street sneezed, the rest of the world caught a cold. In our world of interdependence, if China sneezes, the rest of us can catch a cold. Hence, According to Xi, maintaining political and economic stability is paramount. But he has vowed to tighten control of the internet, including the use of censorship to “clearly oppose and resist the whole range of erroneous viewpoints.” The West has not lost its appeal, and young Chinese are still keen to study in the West.What is unsettling is that Xi has not named any successor, hinting he would remain im office beyond 2022 and possibly well into 2030s. The author says Xi's "report didn’t point to the conclusion of his mandate by 2021, the centenary of the CPC’s "birth." Yet he and others hope that by 2049, China would be able to celebrate the centenary of the People's Republic of China as a global power.The author says, Xi is likely to be in power "for longer than any other major national leader serving today, including Vladimir Putin. What he thinks and says to the Party, the country, and the world, therefore, must be taken with the utmost seriousness. Xi is driving China in a new direction, and whether we like it or not, the rest of us had better understand his agenda sooner rather than later." It remains to be seen, how long Chinese people will let Xi have the mandate from heaven to rule over them. He is no doubt the strongest leader since Mao Zedong. Back then China was closed to foreigners. Today it is a different world and Xi may not find it easy to seal the country hermetically to keep Western democracy, which he sees as "corrupt, hypocritical" at bay. However chaotic democracy can be, the West makes mistakes and gains its oen experiences, which is an enrichment.

This seems an extraordinarily short-sighted article. China is the oldest civilisation in the world, there is no 'relentless new rise' to power and success, and it has regarded itself with some justice as pre-eminent in invention and life-style, to the extent of regarding the rest of the world as peripheral, while the 'silk road' was a path to knowledge and invetion (paper, silk, ex[plosives etc.) for a West that could only wonder at its cities and industriousness.

Two points: China's problem has always been a tendency to division whenever local war-lords get out of control; and they rightly fear the immense slaughter that ensues: hence its basic tradition of strong central leadership and control, right fromthe beginning with its foundation by emperor Chi and the construction of an amazinmg canal system and ruthless mobilisation of manpower. The communist party simply resumes that and meets China's basic need for tough unified control has that marked its success over thousands over of years, a success seen in the removal of Western invasions and control and its renewed pre-eminence, and one that will not be challenged without strong resistance - as in putting down 'rights' rebellions. If it does embark on the proposed new 'silk road' HS railway reaching from its capital to Denmark it will confer benefits upon mankind we may well be grateful for.

Second, the Confucian system of orderly State governance and patience, respect for scholarship andthe cultiral aqcvhievement in poetyry, writing, food, organisation,etc. are amodel that would appear to justify categorizing the 'the West' as quarrelsome barbarians bobbing along in the wake of this great and populous country: as the West will find if next year oil is priced in gold-backed yen and not dollars. Against China our own triumphs must appear fleeting and temporary, and it would be wise to see that and stop petty sniping. Certyainly it has more to offer than an America whose armed forces and 'regime change' and bullying sanctions policies seem to justify a designation as a terroist force.

In the first paragraph the reference that Brexit is better not spoken about is a gross mistake. The UK and EU need to discuss openly on how to recover the situation in a way that helps both the UK and EU, at the moment they play a game of charades while waiting for the ‘exit’ event to fall painfully on the people of UK and EU. Please can the leaders of the UK and the EU wake up and lead from the front.

Interesting assumption that the concentration of power into Xi's hands will be favourable to China's global economic ascendency. If anything the current push to control the media and ensure overall social conformity will result in a hindering of economic growth. Overlooked is the fact that China is itself a country composed of diverse groups who are already restive regarding social issues. This has in part been controlled by arrest and elimination of opposing views or media reporting of opponents coupled with the push to stoke national societal responses under the heading of attacks on China. The question is how long before this all becomes unmanageable and simply converting the CPC to Xi's China doesn't delay the inevitable we have all been there before and done that. Centralised control only works when all the ducks are lined up in a row and the future will see China losing its economic attractiveness as technological advances reduce the need to rely upon cheap manufacturing.

The symptoms of the west you point at is just that symptoms of the depraved paradigm ruling the west now: -The only worthy cause of any effort is to put even more money into the pockets of the super rich.

The amalgamation of power i one persons hand should not be seen as a strength of the system. The leadership is ridden by fear of any dissent and can hardly be an incubator for creation of a varied and prosperous modern society. I do recall that the Soviet Union was hailed by experts as having the superior system at the mid previous century.

Exactly. China's weakness is its defensive desire to look strong by creating a monolithic state. It has been a main theme since at least the the Qin dynasty. Europe's strength is its stubborn diversity which encourages competition among nations and creativity in support of it. Certainly, this often gotten out of hand and led to wars between countries. However, China, despite its efforts toward unity, is not a stranger to war and destruction. But it were mostly civil wars rather than outside invaders that caused most of the damage and suffering. Just in the last 170 years, the violence committed in China comitted by outside forces pales in comparison to that of China's civil wars: The Taiping Rebellion, overthrow of ghe last imperial dynasty, the following wars between nationalists and communists and most recently the Cultural Revolution. On the other hand, China's creative advantage is yet to be manifested.

Democracy can bring economic success. However political democracy may exist but economic democracy in the western world with regards to global trade does not. It global trade is more communist in nature than being democratic. The success of China is edging its economic policies globally to economic democracy. A case in point of western economic communism. Economics 101. Adam Smith's market doctrine is based on supply and demand. The underlying axiom is country X produces good X and is bought by currency X belonging to country X. If country Y wanted good X it has to change its currency Y into currency X to buy good X. That is why a Euro cannot directly buy goods from the US until it is changed into a US dollar hence Exchange Rate. But for Africa, Latin America, Asia that is not the case as seen in the London Metal Exchange. Africa's, Latin America's, Asia's mineral wealth on the LME that handles most of the world's non ferrous metals only allows the US dollar, the Sterling pound, the Japanese Yen, the Euro to buy Africa's, Latin America's, Asia's mineral wealth adding that wealth to the US dollar and the LME accepted Currencies. In 2015 the Chinese reminibi was added to the list while African, Latin America, and Asian currencies minus China and Japan are banned in this so called age of free markets and trade liberalisation. Trade liberalisation and free markets for whom? Do such policies follow the tenets of the market doctrine or corrupt it? Is this economic democracy or is it economic communism the acquisition of resources outside the market system? Democracy thrives on the market system so could this explains why democracies in developing nations have failed because the fuel of democracy being economic value has been drained out of democracy creating mobrocacy that degenerates into tribalism, xenophobia, religious conflict, corruption etc. China moved closer towards economic democracy by following what former editor of the Financial Times Mr Crowther wrote in his book "An Outline of Money" in that “if a purchaser is someone who want D-marks in order to pay for German exports, the fact that he can get his marks cheap is equivalent to a reduction in the price of exports; it will stimulate sale in exactly the same way as an ordinary depreciation of the exchange rate” (Crowther (1951) p.260). While western economic thought focussed on currency depreciations, Chinese economic thought focussed on discounting the price of its exports hence cheap Chinese products helped stimulate US dollar inflows. What is interesting with China is that Chinese firms did not directly earn the US dollars that went to the State that inturn paid the Chinese firms in Chinese Reminbi. In effect it shadowed the fundamentals of Adam Smith's supply and demand doctrine. As the State controlled the US dollar pool it could control the size of the market. Compare the London money markets that handle US$1.5 trillion plus a day. A US dollar inflow of say US$150 million would only have a 10 percent influence on the currency. But if Chinese authorities restrict their market size to US$150 million a day and a US$150 million inflow occurs it would have a 100 percent impact on the value of the Chinese Reminbi. In other wards it becomes to expensive and negatively affects exports. To continue stimulating US dollar cash flows discount the price of exports by making them cheaper which in turn encourages more US dollar inflows, and the US dollar reserves keep building. It is these reserves that China has given out as loans globally on conditions that are far cheaper in value terms than the western banking system. In effect China's US dollars are really Chinese dollars in value terms although they look like US dollars. How can the western world fight the Chinese dollar value , something it cannot see or touch but looks like a US dollar physically? The more the western world fights China economically the more it fights itself. The "Chinese dollar" is far a cheaper products than the US dollar so in line with Mr Crowther in stimulates cheap commodity flows as well. This cheapness is seen in the "Chinese dollar" (refering to the US dollar loaned out by China on cheaper terms than the same US dollar value loaned out of the US) that undermine the IMF fixed cross rates. The IMF fixed cross rates create a western economic dictatorship. The cross-rates appear day in and day out, in value terms, in many national currencies. This implies that national money markets have the same money market currency liquidity and trade volumes to produce the same cross rates as observed between Britain and the United State of America. On the February 16th 2017 the Indian Rupee traded at INR0.01495 per US$1, while the Sterling pound was at INR0.01199 per £1, giving a IMF cross rate of 1.24. The Japanese Yen on the same date stood at JPY¥0.008782 per US$1 and JPY¥0.007033 per £1 giving a cross rate of 1.24. The Canadian dollar also on the same day had CAD$0.76569 per US$1 and CAD$0.61420 per £1 to give 1.24 as it's IMF fixed cross rate. The Chinese Yuan against the US dollar stood at CNY¥0.145541 per US$1, and CNY¥0.116789 per £1, on the same day to give a IMF cross rate of 1.24. The Mexican Pesos, Brazilian Real, South African Rand, on the same day like all currencies across the world had 1.24 as the IMF cross rate fixed on the US dollar and Sterling pound.The reality on the ground is that Zambia, Britain, Canada, India, Japan, China, Mexico nor the EU has the same level and volume of trade to give credibility to the IMF fixed cross-rates. In fact, the demand of the Euro or the Zambian Kwacha, Euro against the US dollar and the British Sterling pound and other African, Asian, Latin American currencies in relation to trade, within their money markets, gives exchange rates that are outside the IMF fixed cross-rate system. There is no competition here with IMF fixed cross rates. It must be noted that IMF MD Mr. M. Gutt at his Harvard University address on the 13th February 1948 noted that the indirect exchange rate of the US dollar to the Sterling pound was £1 per US$2.6 as US$1 equalled 600 Lire and £1 equalled 1,560 Lire, while the direct Sterling pound-US dollar rate stood at £1 per US$4. American found it cheaper buying British goods via Italy. The IMF ruled in favour of Britain as if Italy's money markets had the same inflows as London's money market. China and it's US dollars are more like Italy challenging the dictatorship of the IMF fixed cross rates. In fact if the doctrine of Adam Smith's supply and demand doctrine is followed closely exports have to be settled in the currency of the country of origin of the exported goods , which is the underlying axiom. In effect China may well be on the face politically communist but globally economically it is challenging the global communist cast financial system. True economic democracy means each country's exports must be settled in the exported goods national currency meaning the value of currencies globally would vary from place to place and time to time and currency arbitrage operations would more to getting the most value to buy goods and services cheaply from nations as they are paid in their national currencies. In other words all currencies should be accepted in global trade to create a truly democratic economic system and currency prices would determine the degree of convertibility. This in turn fuels up democratic political systems to thrive and not decay into mobracacy and degenerate in xenophobia, already right systems, tribalism, corruption etc.

Mr. Rudd's knowledge about China may be exemplary, but he clearly has not got a clue about Europe. In the long run, Europe will always be what the rest of the world wishes to be, whether they admit it or not. Just like Mr. Rudd would have liked to be one of the boys.

China just did things differently. While the western business practices tell nations to devalue their currencies China did what former editor of the Financial Times Mr Crowther in his book "An Outline of Money" noted that " if a purchaser is someone who want D-marks in order to pay for German exports, the fact that he can get his marks cheap is equivalent to a reduction in the price of exports; it will stimulate sale in exactly the same way as an ordinary depreciation of the exchange rate” (Crowther (1951) p.260)." It is this cheapness factor that has created the huge US dollar inflows that China enjoys. But how have those US dollars maintained the Chinese Reminbi's strength? That is clearly seen in Economics 101. Adam Smith's market doctrine is based on supply and demand. The underlying axiom is country X produces good X and is bought by currency X belonging to country X. If country Y wanted good X it has to change its currency Y into currency X to buy good X. That is why a Euro cannot directly buy goods from the US until it is changed into a US dollar hence Exchange Rate. But for Africa, Latin America, Asia that is not the case as seen in the London Metal Exchange. Africa's, Latin America's, Asia's mineral wealth on the LME that handles most of the world's non ferrous metals only allows the US dollar, the Sterling pound, the Japanese Yen, the Euro to buy Africa's, Latin America's, Asia's mineral wealth adding that wealth to the US dollar and the LME accepted Currencies. In 2015 the Chinese reminibi was added to the list while African, Latin America, and Asian currencies minus China and Japan are banned in this so called age of free markets and trade liberalisation. Yet Chinese firms quote their export orders in US dollars but the final payment to Chinese firms is in Chinese Reminbi. This naturally follows the market doctrine as the Chinese State handles all the foreign currencies and desperses Chinese Reminbi cover or vice versa. The main engine here that comes into play is the active size of China's State controlled money market. Take the London money markets that are worth over US$1 trillion a day. If inflows of US$100 million came onto the market it's influence would be 10 percent on the currency position. But in China the State can control the market size say to US$100 million a day. If the same US$100 million entered the Chinese market it's influence would be 100 percent on the currency position providing enough credit to continue powering up the Chinese economy, the fuel that creates its political success.This naturally creates a varied value of the Chinese Reminbi frame time to time while its cheap products create a varied value from place to place. Unlike the US dollar that represents western financial ideology it is fixed. Hence it is not in a true sense in a free market as it does not financially follow the Adam Smith doctrine with regards to trade. It is here China gets accused of currency manipulation. The reality of manipulation is seen in the IMF fixed cross rates and not in China but the US dollar. The cross-rates appear day in and day out, in value terms, in many national currencies. This implies that national money markets have the same money market currency liquidity and trade volumes to produce the same cross rates as observed between Britain and the United State of America. On the February 16th 2017 the Indian Rupee traded at INR0.01495 per US$1, while the Sterling pound was at INR0.01199 per £1, giving a IMF cross rate of 1.24. The Japanese Yen on the same date stood at JPY¥0.008782 per US$1 and JPY¥0.007033 per £1 giving a cross rate of 1.24. The Canadian dollar also on the same day had CAD$0.76569 per US$1 and CAD$0.61420 per £1 to give 1.24 as it's IMF fixed cross rate. The Chinese Yuan against the US dollar stood at CNY¥0.145541 per US$1, and CNY¥0.116789 per £1, on the same day to give a IMF cross rate of 1.24. The Mexican Pesos, Brazilian Real, South African Rand, on the same day like all currencies across the world had 1.24 as the IMF cross rate fixed on the US dollar and Sterling pound.The reality on the ground is that Zambia, Britain, Canada, India, Japan, China, Mexico nor the EU has the same level and volume of trade to give credibility to the IMF fixed cross-rates. In fact, the demand of the Euro or the Zambian Kwacha, Euro against the US dollar and the British Sterling pound and other African, Asian, Latin American currencies in relation to trade, within their money markets, gives exchange rates that are outside the IMF fixed cross-rate system. There is no competition here with IMF fixed cross rates. If the western world is to compete with China it must stop believing that the "sun goes round the earth" or that the "world is flat". Global trade has changed and free floating cross rates are needed against a global trade system that demands payments of exports must be in the currency in which the exported goods originate so that trade follows the fundamental tenets of the supply and demand doctrine. The value of the US dollar would thus vary from place to place between markets and time to time within markets. Currency arbitrage would bring the value of US dollars into the domain of Chinese cheap goods, while discounting the price of commodities rather than currencies would as Mr Crowther put it "stimulate US dollars" for the US. China's economic progress is far more than progress it is an ideological challenge to western economic and financial thought. Some thing western economists have yet to understand. A calender year does not make an economic unit. The underlying axiom to statistical data is counting systems. Figures may count in hexadecimal (base 16), or Vigesimal (base 20) or Hexavigesimal (base 26) or Pentasexagesimal (base 65) or may change from one base system to another but are all expressed expressed in a decimal system. Take time a second is broken into hundreds, sixty seconds make a minute it's not 100 seconds. 60 minutes make an hour and 24 hours a day. A set of figures may be counting in binary but expressed in decimal systems will appear to rise much faster, but if it is counting in hexadecimal system but expressed in decimal it will appear to rise much slower. Therefore the true nature of statistical behaviour is identifying the counting system with specific counting or "time" frames in relation to other time frames to determine its exact behaviour. Even famous physicist Albert Einstein (1879-1955) in 1926 in a letter to Max Born (1882-1970) when he talked of the statistical nature of quantum physics said, "is certainly imposing. But an inner voice tells me that it is not yet the real thing. The theory says a lot, but it does not bring us closer to the secret of the Old One. I at any rate am convinced that He does not throw dice, (Clark)."Therefore it is not surprising in that reading financial and economic statistics, especially when they exhibit a behaviour that humans fail to interpret the hieroglyphics, creates a crisis. The crisis has always been a problem associated with the mathematical laws inherent in heterogeneous numerical systems against human built equations functioning in a homogenous numerical system being used to interpret them as not being good enough to understand the higher statistical laws needed to as Descartes said, "perceive all things at once."

The Oriental philosophy and religion, based on Archetypes (described by Jung) are more adaptable to the information age of object oriented data structures, and are superseding the Middle Eastern philosophies of God base on territorial, ethnic and male power.Ask anybody in Silicon Valley, and they will tell you these trends are likely to continue. The Power of Control, through statistical predictions of trends in reality, a Wall Street well understands, is likely to increase for those who understand and exploit data structures, rather than enhance the power of those who ignore them in favor of defiance against the advances of Science.China and the Oriental Mind have already defeated the limited Occidental realty, and are now preparing militarily to defend themselves from the defiant backlash of the philosophies of God that permeate the West.

The West still wears financial folly by virtue of desperate monetary policy and market intervention a decade after the financial crisis. China's massive credit expansion over the last decade makes it no different.

The nature of their planned economy is such that they too can step in to manipulate the imbalances they've created, such as they are currently with government purchases of unsold and heavily leveraged real estate. But there is no denying that this largest expansion of credit in history is very vulnerable to financial crisis. It doesn't mean they are not on a path to world domination, just that they too are vulnerable to a major set back. Oddly, they chose to grow in the very ways that proved toxic in the west - a credit bubble.

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